U.S. military's cuts spur Martin-GE deal Martin buying GE aerospace for $3 billion

November 24, 1992|By New York Times News Service

Due to an error by Reuters, a photo caption that appeared on Page 1A in yesterday's editions of The Sun incorrectly identified John Welch Jr., chairman of General Electric Corp., as Norman Augustine, chairman of Martin Marietta Corp. A graphic that appeared on 8A had the identifications of Mr. Welch and Mr. Augustine reversed.

The Sun regrets the errors.

In a deal underscoring the wrenching new era for thmilitary-industrial complex, General Electric Co. is selling its aerospace division to Martin Marietta Corp. for $3 billion.

The sale removes GE entirely from the military and aerospace electronics businesses it has held since World War I. GE will, however, continue to sell aircraft engines to the military.

FOR THE RECORD - CORRECTION

The acquisition will make Martin Marietta, based in Bethesda, the nation's largest supplier of high-technology military electronics, surpassing the Hughes division of General Motors Corp. and Lockheed Corp.

If approved by the companies' shareholders and the federal government, the sale would have little immediate impact on Martin Marietta's 57,000 employees, including about 4,300 in Maryland.

The deal comes as military contractors everywhere are struggling to adapt to cuts in military spending at the end of the Cold War. The cuts will help reduce the country's huge federal budget deficit, but are likely to result in continued layoffs in the military-supply industry.

Many military contractors are focusing on the businesses they know best, acquiring or selling units rather than diversifying or shifting to non-military work.

"A lot of companies are very uncomfortable and downright scared in making the leap," said Richard Bitzinger, a military industry analyst for the Defense Budget Project, a non-partisan research group in Washington. "They're more interested in sticking with an area they know."

This GE deal is the biggest move to adapt yet. At a news conference in Washington, John F. Welch, GE's chairman and chief executive, said the agreement would benefit the United States as well as GE shareholders "by creating an entity that because of its scale, will provide governments with more value for their aerospace dollar, and because of its enormous technical resources will better serve an American military whose edge in the coming years will stem not from the size of its forces, but increasingly from their technological superiority."

Although layoffs appear likely as Martin Marietta merges redundant operations like marketing and personnel, the companies' complementary businesses should create a company in which "one and one can make three," said Norman R. Augustine, chairman and chief executive of Martin Marietta. "The companies who do consolidate will take the lead," he added. The combined company will have a work force of roughly 94,000 people, including 27,000 engineers and scientists.

Industry analysts and investors applauded yesterday's announcement, and analysts said their enthusiasm might lead other companies with military interests to consider similar moves. Martin Marietta's stock soared $5.625 a share on the XTC New York Stock Exchange on Monday, closing at $63.25. Shares of GE, which is based in Fairfield, Conn., jumped $2.125, to $82.125.

The deal marks the culmination of six weeks of negotiations initiated by GE to sell the division, whose relatively flat performance made it a prime candidate to be cut.

The agreement requires approval from Martin Marietta shareholders and antitrust clearance, which company officials believe they will receive because the two companies do not compete directly in most areas.

The GE aerospace businesses being sold supply satellites, government technical services and a host of systems including radar, sonar, simulation and communications. GE also holds a large contract to design the so-called Star Wars system and space-based missiles to guard against missile attacks. Those businesses generated more than $6 billion of GE's $60 billion in revenue last year.

The GE operations to be merged with Martin Marietta are GE Aerospace, with headquarters in Valley Forge, Pa., and offices in Syracuse, Binghamton and Utica, N.Y.; Moorestown, Cherry Hill, East Windsor and Camden, N.J.; Pittsfield, Mass.; Burlington, Vt.; and Daytona Beach, Fla. Also included are GE Government Services, based in Cherry Hill, N.J.; Knolls Atomic Power Laboratory in Niskayuna, N.Y., and the Machinery Apparatus Operation in Schenectady, N.Y.

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